This week has seen new 2005 highs seen all along the "yield curve" of US Treasuries. It has seen the oil price dip below the $US 60 level for the first time since July. It has seen new 2005 highs on the $US index. It has seen the Fed raise by yet another 0.25% to 4.00% while the Central Bank of Europe (ECB) holds rates at the same level - 2.00% - they have been since June 2003. Oh yes, and it has also seen a $US 16.90 (or 3.6%) fall on the spot future $US Gold price.
Just about all of this Gold price fall has been perpetrated on the US futures markets as, to quote the analysts, "sustained fund selling" has featured. Sure enough, since October 17 the open interest on the Comex has declined by about 50000 contracts.
Last week, Gold rose $US 7.80 to within $US 2.30 of its bull market high set on October 11. This week, the Fed raised rates again and the ECB didn't. The $US index broke through the 91 level for the first time since May 20, 2004, more than a month before the Fed STARTED raising rates. The impetus is partly the continuing repatriation of capital back to the US - intensified by the "problems" at Refco, partly the higher US official rates, and partly the reported third quarter US "growth" figure of 3.8%. Of course, the fact that all (and more than all) of this figure was made up of government and consumer borrowing and spending has been studiously ignored.
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
|
If you doubt that Gold's breaking back above the $US 300 barrier to stay in March 2002 was a "sea change" for world markets, a glance at the percentages in this table should settle the matter beyond all reasonable doubt. Which of the three would you have preferred to own since March 2002?
Please note that over the period covered by the table, the $US Gold price is well over double the $US fall a trade weighted ($US index) basis.
On the daily chart, you can see that the $US 16.90 Gold fall this week has pushed Gold well below both its 10 and 20-day moving averages. The 10 day MA remains below the 20 day MA and will fall further below it if Gold either stays at these levels or falls further. Gold support is actually not shown on this chart. It is the old December 2004 bull market high of $US 456.00 - spot future closing basis.
On the weekly Gold chart, you can see the six week trading range of roughly $US 460 - 477 has been broken through to the downside with the $US 4.00 fall to $US 457.90 on November 4. As you can see, all the earlier "tops" on this chart did not take anything like as long to resolve themselves. One day below the bottom of the range does not a "resolution" make. for now, it remains to see if the old December bull market high ($US 456) will provide support. If it doesn't, the 20 week moving average now stands at or about the $US 450 level.
On the point and figure chart, the tentative uptrend line - the dotted green line - has now been broken through to the downside. We must now wait to see where solid support IS found. Wherever it is found, we won't get a steeper uptrend line on this chart unless and until the Gold price can surpass its $US 477 level of October 11.
Here's another perspective - a comparison between Gold's 2002 low and its present price and the $US index 2002 high and its present "price". All data is on CLOSING levels:
|
Please note that in percentage terms, the rise in the $US Gold price is much more than double the fall in the $US index.
As we have been saying since last November, the chart to watch continues to be the $US 5 x 3 point and figure chart. The uptrend line was established on this chart when Gold broke above the $US 440 level in November 2004. In doing so, the Gold price rose to three clear "X"s above its previous (February - April 2004) highs. That established the uptrend line
After that, Gold reached $US 456 in early December 2004. That bull market high lasted a little over nine months. Then, by October 11, a new bull market spot future Gold closing high was established when Gold went above $US 475. That re-confirmed the uptrend line on the chart.
Last week, spot future Gold closed at $US 461 on October 20, going within $US 1.00 of turning the $US 5 x 3 point chart down. This week, Gold closed at $US 457.90. That DID turn the $US 5 x 3 chart down. Please note where the downturn occurred - right on the line connecting the 1983 and 1987 bull market highs.
The last time that the $US 5 x 3 chart turned down was on July 5, 2005. It took about six weeks, until August 11, 2005, to turn it up again. We'll see how long it takes this time. The thing to stress is that the strategic Gold bull market as shown on the $US 5 x 3 chart is perfectly intact with an uptrend line which has been confirmed and RE-CONFIRMED since December last year.